Many successful businesses are family-owned and operated. You can find family-run enterprises in every industry: manufacturing, construction, real estate, insurance, law, financial services, hotel and restaurant management, and the list goes on. Every trade, every profession. The business often becomes a way to create a family legacy, to achieve a reputation as people of quality and to show commitment to one another, their employees, their clients and vendors, and the community.
But when it comes to planning for the future of your business, how do you handle the tricky matter of estate preservation?
The Value of Life Insurance
Many of us understand the importance of life insurance in providing for our families, covering loans or making charitable gifts, but it is equally important when it comes to preserving your estate and equalizing estate distributions.
Family businesses can get complicated. Some children choose to join their parents’ profession and eventually take the company over to continue the family legacy. At the same time, however, many children choose their own paths. This type of situation creates a dilemma for the parents when they create an estate plan. They can certainly leave the business to the child who has decided to join it, but what can they bestow on a child who has opted out? In addition, they need to think about strategies to shield their assets from estate taxation. The last thing they want is for their heirs to be forced to sell off properties just to pay hefty tax bills. (For related reading, see: 3 Life Insurance Tips for Business Owners.)
This is where life insurance provides a solution. Let’s suppose a business is worth $10 million. The parents can make arrangements to pass on their shares to the child who will carry it on, and they can take out a $10 million life insurance policy and make their other child the beneficiary. In this way, each child would be the recipients of a gift of equal amount. Any other assets worth more than the available estate tax credit could be protected with a separate life insurance policy.
If this is something you want to pursue, here are three quick tips for using life insurance for estate preservation and equalizing estate distributions:
1. Use the Opportunity to Reflect
Estate planning is all about making sure your life continues to have meaning after you pass away. What was your life all about? What is your legacy? What did you stand for? For whom did you care? People will understand what is important to you by your document declarations, the assets you transfer and the gifts you leave. Don’t be afraid to throw yourself into the process and make the most of it.
2. Get the Help of an Expert
Estate planning is both an art and a science. It is also a specialized area of law due to all of the intricate details. When businesses and other significant assets are involved, you need the counsel of an attorney who specializes in estate and business planning so that your plans are legitimized and you can have peace of mind that everything is in order. (For more from this author, see: Using Life Insurance as a Business Succession Plan.)
3. Research Your Options
A sophisticated estate plan could meet multiple needs for life insurance. Various products can apply to your situation, such as single life, joint survivorship, term, guaranteed universal life and whole life. Think outside the box when investigating what will work for you and make sure your attorney and insurance broker team up to design the proper mix of policies.
Your estate is of utmost importance. You’ve dedicated your life to building something significant so make sure your life’s work and those you love are protected and provided for through life insurance. (For more from this author, see: Should My Child Be My Life Insurance Beneficiary?)